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The second client had his whole gains taxed at 20%.
Why did the first step through the different tax rates while the second went straight to the top.
And where can I find the explanation at irs.gov. I searched and all I got was the same simplistic step function that all the rest of the Internet has.
Thanks in advance, Christopher
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You have to look at the Schedule D tax worksheet. At the very end of the instructions:
https://www.irs.gov/pub/irs-pdf/i1040sd.pdf
4/14 might not be the best day to learn this, it's pretty convoluted. The first time I went through it I jotted notes down next to the lines on the worksheet to say what that number means. I actually just went through one for a sale of rental property with 1250 gains. I followed the QD/LTCG amounts through to see how they got taxed. Then the 1250 gain at the max 25% rate (client has $700K+ of income). Then everything else is taxed at ordinary rates. The worksheet adds everything up and compares it to regular tax to see which is better.
I don't deal with 1250 much so my normal spreadsheet doesn't account for it. But I was able to take the 1250 gain x (37% - 25%) to add the 1250 "savings" to the QD/LTCG "savings" and use that to reduce the regular tax. Worked like a charm.
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Should I just trust ProSeries here and have confidence that it was done correctly?
Thanks,
C
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I went to the Fox Mulder school of tax preparation. Trust No One.
That said, there have been no reports of ProSeries calculating capital gains taxes incorrectly this year.
